My Pure Storage (PSTG) Pitch

Here’s why I’m bullish on PSTG.

Only 0.5% of all data is analyzed and used. Pure Storage has big plans to unlock the rest.

Pure Storage was founded in 2009 by John “Coz” Colgrove and John Hayes to revolutionize the stagnant storage industry with its software-driven storage technology that delivers both faster and simpler performance than any of its competition. The company came public in 2015 and was up nearly 80% until the recent tech-wide sell off brought it back within reach of its $17.00 IPO price.

Pure Storage has been taken to the cleaners as if it has a dying business model in an industry that’s being left behind by its customers. That couldn’t be further from the truth. With the proliferation of data-intensive technologies like artificial intelligence and machine learning, companies are more reliant on data than ever before. Unfortunately, due in part to restrictions on storage capacity, cost, and ease of access, only 0.5% of all data created is actually analyzed and used. This leaves a world of opportunity up for grabs to the businesses that win the race to unlock their data. Management has strategically positioned Pure Storage to be in the right place at the right time to benefit from this generational opportunity.

With 34% year-over-year revenue growth, industry leading gross margins of 68% and an industry leading Net Promoter Score* of 86.6, Pure Storage’s current products have clearly helped the company win the hearts and minds of its customers. However, what has me most excited about Pure Storage’s future is its transition to a subscription-based model and recent product announcements which have the potential to greatly expand its total addressable market.

Industry leading current products

The company has claimed $1.38 billion of the $35 billion storage and storage software addressable market with two primary product offerings. Flash Array which was introduced in 2012 for structured data and Flash Blade which was introduced in 2016 as the first all-flash-array for analytics, and artificial intelligence or unstructured data. These two lines of products have solidified Pure as the leader in both completeness of vision and ability to execute in independent research firm Gartner’s Magic Quadrant for solid-state or flash arrays for five straight years.

A beautiful combination: Flash Array and Evergreen Storage Service

Over the last seven years, Pure has released seven generations of Flash Array improvements increasing from 128 GB of capacity in 2012 to 18.3 TB a 176x increase with 5x faster throughput with zero down time for customers which has been a true differentiator for Pure because competitor offerings require downtime for upgrades every 3-4 years.

At its annual Accelerate conference in May, Pure announced Flash Array X which crushes competition from Netapp and others requiring 90% less physical space and 40% less flash to deliver the same amount of storage capacity. With Flash Array X, customers save money by requiring less flash storage and less overall space (and energy) to physically store it.

To compliment the roll-out of Flash Array X, Pure also announced its Evergreen Subscription Service (ES2) which allows customers to move to a usage-based consumption model similar to what cloud platforms like Amazon’s AWS offers. This is a game-changer for Pure because the company has 5,450 existing customers who already love its no disruption upgrades. That customer love can be leveraged to drive customers to a higher-margin, more reliable usage-based consumption model. New customers can also choose the ES2 model, or pay for the hardware upfront to meet their storage needs. Pure will continue offering both models to enable customers to choose whichever method works best for them.

FlashBlade: joining the AI party with some killer partnerships

FlashBlade was released in 2016 and it’s really been Pure’s most important product ever since. Designed for unstructured data with data analytics and artificial intelligence as two primary use cases, FlashBlade is the key driver to Pure helping businesses unlock the 99.5% of data they haven’t been able to use.

Since releasing FlashBlade, Pure has announced partnerships with Nvidia to deliver AI ready infrastructure named AIRI and Cisco with FlashStack to modernize Oracle data warehouses. Most importantly for investors, these vendors chose Pure as a partner on these platforms because Pure’s technology enables their functioning whereas competitor’s flash storage was slowing performance. A leading SaaS company reduced the time it took for a full recovery from 38 hours with a competitor to 30 minutes with FlashBlade while realizing a 75% cost savings.

FlashBlade sales appear to be gaining momentum as more businesses turn to AI and want to analyze more data. Management doesn’t break-out FlashBlade revenue specifically, but during Pure’s third quarter earnings call, announced it was now a “significant” portion of revenue and that FlashBlade sales had “their best quarter yet”.

The future looks cloudy, in a good way

On November 19th, Pure announced its next big bet on the future, a line of cloud data services, which enable customers to drive true hybrid cloud operations.

Build your cloud: Pure now offers cloud data infrastructure with cloud hosting framework integrations built in to provide storage-as-a-service for private or on-premise clouds

Run anywhere: Cloud Block Store provides a storage platform for customers to run applications seamlessly across hybrid or a mixture of on-premise and public cloud atmospheres.

Protect Everywhere: Pure’ Storage CloudSnap and StorReduce technologies run natively on AWS and allow customers to choose the best strategy to protect their data no matter where it’s located with optimized backup, recovery, and retention.

The company has not made any revenue projections for this new series of products, but I’m excited by the potential. On Pure’s third quarter earning call, management summed the opportunity up nicely during Q & A:

“ I think we’re really seeing great signs of feedback from both traditional enterprise customers as well as cloud-native type customers. For traditional enterprise customers, we can help them move their mission critical apps to the cloud seamlessly. And for web scale customers, they can develop much more simply and have the resiliency be built into the storage layer so they don’t have to build it into every application they create. And then the final thing I’d say, just from an opportunity point of view, is that the Flash to Flash to Cloud opportunity and modernizing backup is a real opportunity. That’s largely TAM we haven’t gone after in the past and it’s a huge opportunity to go in and modernize that entire workflow.”

I firmly believe Pure has strategically positioned itself as a key enabler in a resurgent market. As an innovator with nearly 6,000 customers who love its products, Pure offers long term investors an incredible opportunity to start or add to a position while Wall Street is underestimating its potential.

By the numbers:

Market Cap: $4.17 billion
Revenue(FY 19,18,17): $1.38B* $1.023B, $728M

  • estimated
    Quarterly YoY Revenue Growth: 34%
    Gross Margin: 66.8%

Repeat purchases based on how long customers have been with Pure.
12 months: 1.9x
24 months: 3.1x
36 months: 5.2x
48 months: 7.8x

YoY Average Customer Spend Growth: 45% (somewhat similar to what we know as net expansion of 145%)
Net Promoter Score: 86.6 (I’ve only ever seen one higher than this)

The Net Promoter Score is an index ranging from -100 to 100 that measures the willingness of customers to recommend a company’s products or services to others. It is used as a proxy for gauging the customer’s overall satisfaction with a company’s product or service and the customer’s loyalty to the brand.

Cash and investments: $1.1B
Free Cash Flow (Q3): $28.5M up from $14M YoY

Company Glass Door Rating: 3.8 (medium-high)
Glass Door Approve of CEO: 94%
Founder-led: Yes, Co-Founder John “Coz” Colgrove is Chief Technology Officer and serves on the Board of Directors.
Company Podcast: Pure Report
Twitter Profiles to Follow: @PureStorage, @purerludeman,


Great post and thanks!

If they are seeing as you say a 145% net expansion rate wouldn’t their Rev growth be greater that 34% for the qtr?

What am I missing?


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